Tax-exempt properties get closer look

Sunday

Apr 29, 2012 at 4:09 PM

Aly Van Dyke

Shawnee County has 48 properties appraised at more than $10 million.

Thirty-two of them don’t pay property taxes.

In fact, 1,743 properties in Shawnee County are exempt from property tax — either by state statutes, like government offices, churches and hospitals, or by the local government to encourage economic development.

If all those properties were added to the tax rolls, it would put another $70.9 million into the county’s coffers — or almost 38 percent of the $188.7 million the county is on track to collect for real estate properties in 2011.

The amount of exempt taxes would mean a 15 percent reduction in property taxes for county residents — or roughly $250 off the property taxes of a $100,000 home in the city.

The only classification that generates more tax revenue than exempt properties is residential, which was supposed to generate about $121.2 million in 2011. Commercial sites were slated to bring in $56.3 million in taxes last year.

Those numbers are based on county appraisal and tax data, but county appraiser Mark Hixon said he wasn’t confident in some of the appraisals of tax-exempt entities. That is because tax-exempt properties never appeal their appraisals, he said, so his office doesn't expend significant amount of time and resources on them.

Exemptions for economic development purposes — properties that eventually will be taxed — are accurate, he said.

FOR AND AGAINST

Most officials agree some of the exempt properties, such as school buildings and county offices, wouldn’t make sense to tax because the residents would pick up the bill.

But some officials aren’t sold on the idea of tax breaks to nonprofits and commercial entities.

"I really think, at the end of the day, those folks should be paying their property taxes," Topeka Councilman Chad Manspeaker said. "If you’re a part of our community, you should pay your fair share."

He argued those entities still receive fire and police service, without paying for them.

Appraisal data show the county has 342 churches, 298 nonprofits, three hospitals and four commercial sites exempt from property taxes.

Together, the properties amount to an appraisal value of nearly $548 million in 2012. Assuming the 12 percent assessment rate associated with the nonprofits, a 25 percent assessment rate associated with the other exempt properties, and the average 144 mill levy, the entities would generate $14.6 million in taxes. Adding that to the tax base would result in a 6.4 percent decrease in property taxes for county residents.

Manspeaker also questioned whether incentives to commercial properties were enough to offset the jobs the community has lost over time. Instead of extending big breaks to large companies, he said, the community should utilize existing resources to promote start ups and local entrepreneurs.

However, many officials say offering tax breaks to commercial sites is better than the alternative — losing them to other communities that will.

"Unfortunately, it is the price of doing business," Shawnee County Commissioner Mary Thomas said. "To be in the game, there’s really no way around it."

Topeka Councilman Bob Archer said he was "all for" tax breaks so long as there is a systematic process that properly vets the benefits to the community.

COSTS AND BENEFITS

Businesses that want tax exemptions must file an application with either the city or the county, said county counselor Rich Eckert.

The county has established an administrative review team — made up of the clerk, the counselor, the affected school district, a commissioner and a designee by the city mayor — to assess the applications, perform a cost/benefit analysis and, ultimately, make a recommendation to the full commission.

Most of the applications provide tax breaks for 10 years and include such objectives as capital investments and job creation. And most applications, Eckert said, are recommended for approval.

"Even if they don’t pay property taxes for 10 years, the amount of good that happens in that 10 years far outweighs the taxes given away," he said. "It’s a no-brainer for us to do it because we get the money back in such a quick turnaround."

Although the county waived $1.88 million in property taxes for the $30 million Allen Foods/Bimbo Bakeries USA facility, the site was expected to generate $3.95 million in other benefits — resulting in a net benefit to the county of nearly $2.1 million, according to the county’s cost/benefit analysis. And that number is conservative, Eckert said.

The potential for tax breaks on the $250 million Mars Chocolate North American factory wasn’t a driver for the company choosing Kansas over 12 other states, but it didn’t hurt, said Mark Broadhurst, director of public affairs and government relations for the company.

"We are a privately-held business, and this enables us to take a long-term approach," he said.

The county commission has authorized tax exemptions for 18 properties. The city has eight on its list.

Many of them won’t pay taxes for another five years, but others are making minimal payments in lieu of taxes in accordance with their industrial revenue bonds.

The county will receive property taxes on those sites after the 10 years are up, Eckert said.

Security Benefit Group, for example, pays $500,000 in lieu of taxes each year, but it will be taxed on its appraised value starting in 2012. The company is set to pay $1.65 million in property taxes next year.

If it had been added to the 2011 tax roll, the property would have generated enough taxes to save each resident in the same tax district $18.75 on a $100,000 home.

However, Eckert said, he couldn’t think of an instance in which mill levies were reduced as a result of a large property coming onto the tax rolls.

Although some people write off exempt taxes because the county isn’t collecting them anyway, Manspeaker said, that line of thinking is a fallacy — one the county can’t afford with declining property values.

"Too often, I think, people look at the unrealized tax revenues and don’t worry about them because we’re not getting them anyway," Manspeaker said. "I don’t think we have that luxury."

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